Where are the key paperless digital transformation opportunities?
This is the second of three posts on the theme -- CFOs and Finance Directors: Neglected Players in the Drive for Digital Transformation. The first post was HERE. The core point of the three posts is the financial process automation creates a value stream in two directions. It is a proven source of cost reduction for companies looking for marginal but sustaining competitive advantage, something that Finance Directors can use to "manage up" in their organizations in making the case for resources to drive financial process automation, which is the focus of this post. Financial process automation also creates the foundation for sound analytics and business intelligence, a priority of great concern to the C-Suite, which will be the focus of the third post. The American Productivity and Quality Center notes that cost reduction is the key business driver for 43% of financial improvement initiatives. Let's think about the role that content and more effective management of unstructured information plays in delivering upon this promise. The Harvard Business Review (https://hbr.org/2010/05/when-youve-got-to-cut-costs-now) notes the importance of permanent process change in the drive to cut costs, and automating the capture component of processes is a key part of insuring the permanence of change. “Often, internal administrative processes become frozen—despite the fact that, over time, they may cease to be efficient or effective. Asking questions in four areas can help you understand whether this has occurred in your department and whether you can cut expenses accordingly: Reduced business requirements. How have the business requirements evolved since you last fundamentally redesigned the process? Perhaps the need for certain data has diminished or disappeared altogether. How would you design the process differently today, to meet today’s needs? Manual processes. Where do you use people to process forms or information repetitively, rather than do it electronically, with little or no human intervention? Exceptions to the norm. Do the routine 90% of items cost much less to handle than the exceptional 10%? What would it take to do away with the exceptional ones? At a large health insurer, we found that a 'clean' claim cost 80% less to process than one that required special handling. By redesigning its claim forms and eliminating exceptions that did not matter, the client saved more than half the cost of exceptions. Timing. Could you save money by shifting the time of day, week, or month that you undertake certain tasks? For example, how about doing the work when activity in your department is otherwise slow? Could it be done more efficiently in batches? Is there a real penalty attached to being available online for fewer hours of the day? Could tasks be completed more efficiently if they were not tackled on a first-in, first-out basis?” Financial processes have three key characteristics that make them a prime candidate for cost reduction efforts: 1) They represent significant cost to the organization; 2) They are characterized by wide variation in performance; and 3) They are typically very paper intensive. Consider this data from the American Productivity and Quality Center (http://www.apqc.org). and consider what this means in actual dollars: Let’s break this down a bit. There are five core processes characteristic of just about any finance department: Accounts Payable Accounts Receivable Financial Close Process Procurement & Purchasing Vendor Management What do these have in common? They are all: 1) document-intensive; and 2) must integrate with your broader financial and/or ERP (Enterprise Resource Planning Systems). Your ability to automate them and reduce cost – your key to moving from a bottom performing finance organization to a top performing one – rests on putting in place a common document management infrastructure for all of them. Financial process Document challenges Accounts payable Automation cannot occur without strategy to capture documents that arrive from multiple locations and in widely varying formats Accounts receivable Disconnected and manual contracts, billing, sales order, and dispute resolution processes Financial close process Endless, frantic and manual end-of-month spreadsheet reconciliation Procurement and purchasing Manual purchase order processes disconnected with finance and ERP systems Vendor management Manual vendor onboarding No central view of relationships with key business partners Most organizations have not applied the lessons from the digital mailroom to their core financial processes. According to an AIIM unreleased survey of 290 finance executives, there are still many green field transformation opportunities in you core financial processes. Some would argue that most organizations automated their financial processes long ago. Perhaps on the data side, but not on the content and unstructured information side. When we asked, “What is paper usage in the following processes?” here are the percentages answering, “% answering “A lot of documents are processed as paper documents”: Accounts receivable = 38% Financial close process = 40% Accounts payable = 39% Procurement and purchasing = 32% Vendor management = 32% Consider the differences in cost structure associated with invoice processing in top performing vs. bottom performing companies (source: http://cdn.cfo.com/content/uploads/2015/06/Driscoll-June.png): Information Capture is a proven first step in digitizing information and improving financial processes. According to AIIM’s Paperfree Progress: Measuring Outcomes, 72% agree – “Business at the speed of paper will be unacceptable in a few years’ time.” Financial process automation has been one of the bread and butter content management applications for years. But I think these initiatives need to be viewed not only through the prism of cost reduction, but also in terms of how back-end process automation and efficiency are now Digital Transformation table stakes. In a world in which customers and suppliers are being drawn further and further into our organizations, no smooth and beautiful front end customer experience can compensate for weak supporting processes that are inevitably the next step in a customer experience. Finance Directors need to understand this critical linkage and use it to "manage up" in their organizations in making the case for resources to drive financial process automation. ----- Free white paper -- 4 Facts Savvy CFOs Must Know about Business Process Transformation
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This is the first of three posts reflecting thoughts on the role of Financial Process Automation in Digital Transformation. Yes, you read that right, and I realize it could be argued that this is one of the great oxymorons ever, combing "Financial Process Automation" and "Digital Transformation" in the same sentence. But stick with me. Every business operates on a pretty thin line between success and failure, and technology disruption is making this line sharper every day. We all know the survival challenges faced by new companies. According to the U.S. Bureau of Labor Statistics, only about 50% of all new businesses survive 5 years or more, and about one-third survive 10-years or more. But even when a business gets past the initial survival threshold, it must still constantly look for sources of advantage and efficiency. According to the Yahoo!Finance database for 212 different industries, the median profit margin for U.S. public companies was 6.5% for the most recent quarter. 6.5%. That certainly isn’t a very large margin between success and failure. So the question for any business executive is whether you want to operate as a bottom tier company barely scraping by or as a top tier company, generating profits and investing for the future. So of course, the answer is “Duh!” Alex Trebek, I will choose “Success” for $20. How can you lay a solid foundation for digital transformation? How do you systemically get to be a top tier company? How can you push your median profit margin well above the 6.5% survival level of the typical US company? According to the American Productivity and Quality Center -- an awesome organization, BTW -- an amazing 74% of organizations are currently engaged in a finance process improvement initiative. Why are they doing this? And how does this tie to broader Digital Transformation initiatives? APQC notes that cost reduction is the key business driver for 43% of these initiatives, and that will be the focus of my second post. Financial process automation -- and particularly automating invoice processing -- has been one of the bread and butter content management applications for years. But I think these initiatives need to be viewed not only through the prism of cost reduction, but also in terms of how back-end process automation and efficiency are now Digital Transformation table stakes. In a world in which customers and suppliers are being drawn further and further into our organizations, no smooth and beautiful front end customer experience can compensate for weak supporting processes that are inevitably the next step in a customer experience. Finance Directors need to understand this critical linkage and use it to "manage up" in their organizations in making the case for resources to drive financial process automation. The same APQC survey also notes an even more important business driver for finance process improvement initiatives. They note that 50% of these initiatives are being driven by “the realization of the need for better business analytics.” Ding, ding, ding, we have a winner in the Digital Transformation sweepstakes. The focus of my third post in this series will be on how C-Suites need to drive finance improvement initiatives down through their organization, not just because they can save money and not just because customer needs require it, but because financial processes are a rich and untapped source of the data and analytics that is needed to fuel Digital Transformation. So join me on the ride -- CFOs and Finance Directors – Neglected Players in the Drive for Digital Transformation. Free white paper -- 4 Facts Savvy CFOs Must Know about Business Process Transformation
AIIM Board member John Chickering -- always on the prowl for interesting information -- spotted some data from the Federal Reserve that illustrates just how far we have come in the world of paperless transactions.
Today’s guest post is by Dan Dillon, team lead of influence marketing at Perceptive Software. Perceptive Software creates enterprise content management (ECM) software products that integrate easily with your business applications to fuel efficiency.